Analysis & Opinion

PARIS (Reuters) - A politically charged deal between the French government and ArcelorMittal to preserve jobs at an ailing steelworks looked at risk of unraveling on Thursday after the global steel giant ditched a bid to run an EU-funded project there.

ArcelorMittal (ISPA.AS), 40-percent owned by India's Mittal family, withdrew an application to use the Florange site in northern France for an EU "green steel" pilot project that Paris had hoped could keep two idled blast furnaces going.

ArcelorMittal and Prime Minister Jean-Marc Ayrault said the move did not mean the idea of using Florange for the ULCOS project to make steel with fewer greenhouse gas emissions was being permanently abandoned.

Separately, President Francois Hollande said all promises made to save the Florange site would be kept.

"I've seen the distress and anger and I know what's caused it. But my responsibility is to make sure Florange has a future," he told journalists in Paris.

A source close to the president said Lakshmi Mittal had made a promise to run an ULCOS project at the site, and that only a first version of the plan had been ditched.

Unions and local politicians reacted angrily to the news, with metalworkers briefly occupying the furnaces, and other employees staging sympathy action at two other ArcelorMittal sites.

ArcelorMittal, which has been under fire for months in France over its plan to permanently shut the Florange furnaces on the grounds they are not economically viable, said it could not currently pursue the ULCOS project for technical reasons.

"(This) is perfectly coherent with what is in the agreement signed with the French government," the company said, adding: "This in no way means the ULCOS project is being abandoned."

Firebrand leftist Minister for Industrial Revival Arnaud Montebourg raised the stakes last week by declaring Indian steel magnate Lakshmi Mittal unwelcome in France and accusing him of lying. He also threatened to nationalize the steelworks, raising workers' hopes that were dashed by last Friday's deal.

Ayrault, whose government was appointed by Hollande after the Socialist was elected president in May, said in a statement that the European Commission had indicated that the project could be pursued in a future tender.

Asked about the deal, Ayrault told the Senate that the government had achieved its goals. "There will be no lay-offs: that was the objective we had set for ourself."

But in the most optimistic case, a potential start date would now be delayed by several years, throwing into question the idea that ArcelorMittal would keep spending money to keep the mothballed furnaces in working order.

A survey by pollster OpinionWay underscored a loss of faith in the government, with 76 percent of respondents saying they did not believe it could keep ArcelorMittal to its promises.

"LIARS"

Metalworkers at ArcelorMittal's Fos-sur-Mer plant in southern France blocked the site's entrances to show solidarity with their peers at Florange. Workers in the plant's finished products section went on strike.

Union leaders at the company's Basse Indre plant in eastern France called for a 24-hour strike next Monday. Florange workers left the furnaces after being told a gas main that keeps it from falling into disuse would be kept on.

"We're angry to see Florange workers and their union representatives treated this way," said Michel Tosi, a CFDT leader at Fos. "They were fooled."

Michel Liegbott, a Socialist lawmaker for the surrounding Moselle region, told BFM television that the government had broken its commitments with regard to Florange.

"We've been conned. They are liars," he said. "They should have said what they are saying today six months or a year ago."

Last week's agreement, under which ArcelorMittal committed to preserve some 630 jobs at the two blast furnaces, was a crucial test of Hollande's pledge to stem a run of industrial lay-offs and revive French competitiveness.

France's unemployment rate hit a new 13-year high of 10.3 percent in the third quarter of the year, data showed on Thursday, piling more pressure on Hollande, who has vowed to halt the rise by the end of 2013.

ArcelorMittal had agreed to invest 180 million euros ($235 million) in Florange and keep the furnaces in working order so they could be used if its application to use the site for the ULCOS project was successful.

ULCOS (Ultra-Low Carbon Dioxide Steelmaking) is a consortium of 48 European companies and other organizations working to develop ways to cut CO2 emissions from steel production in order to curb the greenhouse gases blamed for global warming.

A European Commission spokesman confirmed on Thursday it had received written notification from ArcelorMittal that it had decided to withdraw its bid "due to technical difficulties".